Vacancy rose slightly in the Northwest Indiana office market last year, after the Region's first new speculative office building in a decade went up in Hammond.
But rents have been rising and the vacancy rate is expected to fall this year, according to Commercial In-Sites' annual Class "A" office market report.
The Merrillville-based commercial real estate brokerage and consultancy found Northwest Indiana's office vacancy rate crept up by 1 percent to 15 percent last year, as compared to the 13.5 percent vacancy rate CoStar reported in the overall Chicago metro. Average rents in Northwest Indiana increased by 1.1 percent to $22.59 per square foot on Jan. 1, up from $22.33 per square foot at the same time in 2016.
Northwest Indiana rents remain nearly 5 percent cheaper than in the rest of the Chicago metro, where CoStar reports rents average $23.68 per square foot.
"While the market continues to have many tenants either renewing in place, expanding or contracting in place and some relocations within the market, we expect to see a growing trend of more new tenants entering the Northwest Indiana market, some relocating from Illinois and other states, more regional offices and some entirely new companies emerging as Northwest Indiana is increasingly recognized as a true Chicago suburban sub-market," Commercial In-Sites President David Lasser said.
The report tracks 26 properties across Northwest Indiana, 10 of which are 100 percent full. More than half the space available on the market – 121,744 square feet – is located in The Twin Towers at Interstate 65 and U.S. 30 in Merrillville and at 8585 Broadway, the eight-story Chase tower that's the tallest building in Merrillville.
The office vacancy rate was 17 percent in Lake County last year, up from 15 percent, Commercial In-Sites found. It fell to 5 percent in Porter County, down from 6 percent the previous year, Lasser said.
"Based on current active leasing prospects and no additional new multi-story office buildings planned to be constructed in 2017 we expect to see vacancy rates reduce this year," he said.
ATG Real Estate Development LLC developed the new 37,200-square-foot, three-story 2929 Carlson Drive building just off the Borman Expressway. It is already half full after opening in January. Tenants include ATG; the IT support, marketing and web design company Impact Networking; the law firm Westland & Bennett; and the Northern District of Indiana Federal Community Defenders, ATG spokeswoman Cindy Anderson said.
Impact Networking has its name plastered on the top of the highly visible office building on one of the most heavily trafficked highways in the United States, which ATG Founding Principle Eric Gastevich said was one of the building's biggest selling points. ATG has been giving highway-facing signage to any tenants who rent more than 4,000 square feet.
"Exposure on a billboard costs many thousands of dollars a month," he said. "This a unique opportunity for a eye-catching sign with 185,000 vehicles passing daily. That's an enormous amount of eyeballs. It's a branding opportunity that's available almost nowhere else in Northwest Indiana."
ATG Real Estate Development, which is in negotiations with more prospective tenants, expects the office building will soon be two-thirds full, and is already working on plans to build on a second site at Oxbow Landing, though Gastevich said it was too preliminary to say whether the project would end up being a second office building or something else entirely.
"There's been no new office development for many years in Northwest Indiana," Gastevich said. "We haven't had any speculative office development in a decade. There hasn't been any significant general purpose office space added to the general office market."
Part of the problem was that banks stopped financing such projects after the financial collapse, Gastevich said. They want developers to have at least 50 percent occupancy lined up in advance. ATG avoided that obstacle by self-funding the multimillion-dollar Class A office building.
"Very little land had been available for development along the Borman," Gastevich said. "Most of it is already developed residential and is sitting behind sound walls for the most part. This was one of the first opportunities to bring offices, restaurants and that type of development to the Borman."
The 2929 Carlson Drive building could be just the start. Griffith also is eyeing the development of new offices along the Borman, at the old Griffith Golf Center. Carmel-based Wabash Scientific presented the Griffith Town Council with a conceptual rendering of a 27-acre campus that would include a pair of six-story office buildings, comparable in size to The Twin Towers in Merrillville.
Such developments were made possible by the flood walls and other measures done along the Little Calumet River after the massive 2008 flooding. The Little Calumet River Basin Development Commission estimates the $275 million levee project will open up 1,500 acres of once-marginal land near the river for economic development.
Much of that land runs parallel to the Borman Expressway.
"The branding exposure is significant because the Borman definitely has the highest traffic count of any road in the Region," Gastevich said.